Maximizing Returns in an Economic Downturn: The Power of Customer Engagement and Retention
As part of Solutions Review’s Contributed Content Series—a collection of contributed columns written by industry experts in maturing software categories—Josh Wetzel, the Chief Revenue Officer at OneSignal, explores how customer engagement and retention strategies can help companies maximize ROI during economic uncertainties.
In today’s challenging economic landscape, many companies face increasing pressure to cut costs and maximize return on investment (ROI). As businesses reevaluate their budgets, marketing spending is often one of the first to be reduced or scrutinized. However, studies suggest that focusing solely on cost-cutting measures may not be the most advantageous approach during economic challenges. Research conducted during the 2008 financial crisis revealed that companies prioritizing customer retention over acquisition experienced higher growth rates. OneSignal recently released the findings of its 2023 State of Customer Messaging Report that further proved this and showed the true value of investing in customer retention in a down economy.
The True Value of Customer Retention
While many businesses understand the value of building strong customer relationships, they often fail to take advantage of these opportunities by focusing primarily on customer acquisition. Acquiring a new customer is typically more expensive than retaining an existing one, and building and maintaining customer loyalty is more cost-effective in the long run. Selling to existing customers also yields higher success rates than selling to new customers. Engaged and valued customers are more likely to recommend a brand, leading to organic growth.
So, why are so many businesses focusing on acquisition and struggling to shift their strategies? Some may lack the necessary resources and engagement tools to retain customers effectively. These businesses need to understand that just a small shift in resources from acquisition to retention can significantly impact ROI. The 2023 State of Customer Messaging Report showed that increasing customer retention rates by just 5 percent can substantially increase overall profits, ranging from 25 percent to 95 percent.
To understand the actual value of user retention, businesses must evaluate current spending on customer acquisition and determine its ROI. This involves calculating customer acquisition costs by dividing total marketing and sales expenses by the number of new customers acquired. When evaluating the budget, it is important to consider both direct expenses, such as paid advertising campaigns, and indirect expenses, including marketing and sales team salaries, agency fees, and software costs. Ideally, the cost of acquiring a customer should be lower than the revenue generated from that customer over their lifetime, but this is not typically the case. Companies can substantially impact customer lifetime value (LTV) and enhance profitability during challenging economic periods by slightly reducing customer acquisition spending and reallocating savings toward customer engagement.
How to Drive Engagement and Boost Long-Term Retention
To increase customer engagement and retention, businesses must implement effective engagement strategies and invest in the right solutions. These tools play a vital role in retaining users by enabling automated, personalized communication, customized multichannel engagement strategies, and data-driven insights.
Personalization plays a crucial role in customer engagement by using real-time data to customize recommendations, target offers, and tailor messaging to specific user segments. User segmentation plays a key role in personalization, enabling companies to create dynamic groups of users with shared characteristics, behaviors, and preferences. This approach leads to higher click-through rates and allows efficient resource allocation by identifying high-value users with higher ROI potential.
Embracing a multichannel approach in customer engagement is essential as it allows businesses to extend their reach, cater to user preferences, enhance the user experience, and foster stronger brand loyalty. People actively use more devices daily than ever, and they expect companies to adapt their customer experience in tandem with their real-time engagement. Aligning messaging with the specific characteristics of each engagement channel optimizes their effectiveness. For example, push notifications and SMS are ideal for time-sensitive content, while email provides more space for comprehensive information. Companies with a personalized, omnichannel engagement strategy experience over three times higher click-through rates than those relying on a single channel.
Adopting these engagement strategies can help businesses remain competitive during uncertain economic times. While cost-cutting measures may be tempting, prioritizing customer engagement and retention proves to be more advantageous. By shifting budgets from customer acquisition and investing in effective customer engagement solutions, businesses can build stronger customer relationships through relevant, timely, and personalized communication. With a stronger focus on customer engagement and retention, companies can maximize returns and build a sustainable future.